Correlation Between Chien Kuo and Farglory Life

Can any of the company-specific risk be diversified away by investing in both Chien Kuo and Farglory Life at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Chien Kuo and Farglory Life into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chien Kuo Construction and Farglory Life Insurance, you can compare the effects of market volatilities on Chien Kuo and Farglory Life and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Chien Kuo with a short position of Farglory Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chien Kuo and Farglory Life.

Diversification Opportunities for Chien Kuo and Farglory Life

0.05

Correlation Coefficient

Chien Kuo  Farglory Life

Significant diversification

The 3 months correlation between Chien and Farglory is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Chien Kuo Construction and Farglory Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farglory Life Insurance and Chien Kuo is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Chien Kuo Construction are associated (or correlated) with Farglory Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farglory Life Insurance has no effect on the direction of Chien Kuo i.e., Chien Kuo and Farglory Life go up and down completely randomly.

Pair Corralation between Chien Kuo and Farglory Life

Assuming the 90 days trading horizon Chien Kuo is expected to generate 6.18 times less return on investment than Farglory Life. But when comparing it to its historical volatility, Chien Kuo Construction is 9.69 times less risky than Farglory Life. It trades about 0.13 of its potential returns per unit of risk. Farglory Life Insurance is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,699  in Farglory Life Insurance on October 23, 2024 and sell it today you would lose (69.00) from holding Farglory Life Insurance or give up 4.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Chien Kuo Construction  vs.  Farglory Life Insurance

Chien Kuo Construction

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chien Kuo Construction are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chien Kuo showed solid returns over the last few months and may actually be approaching a breakup point.

Farglory Life Insurance

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Farglory Life Insurance are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Farglory Life showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chien Kuo and Farglory Life

The main advantage of trading using opposite Chien Kuo and Farglory Life positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chien Kuo position performs unexpectedly, Farglory Life can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Farglory Life will offset losses from the drop in Farglory Life's long position.

The idea behind Chien Kuo Construction and Farglory Life Insurance pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.